The Newport-Mesa Unified School District will pay $20,000 into a special retirement account for Supt. Fred Navarro as a reward for a performance evaluation last year in which he was rated “exceptional.”

The district’s board of trustees voted 6 to 0 during a closed session in November to place funds into a tax-sheltered annuity for Navarro. The money, which acts as merit pay in addition to his salary, is based on Navarro “reaching or exceeding mutually agreed upon goals/standards in his annual evaluation,” according to his contract.

A tax-sheltered annuity, also known as a 403(b) account, is similar to a 401(k) in that it enables some of an employee’s income to be placed in an account for later use. The deferred income is generally not subject to federal or state income tax until it is distributed, according to the U.S. Internal Revenue Service. The IRS also allows employees to put money in the accounts individually.

The district also has a tax-sheltered annuity for Paul Reed, the district’s deputy superintendent and chief business official, as an incentive for him not to retire. Since 2009, documents show, the district has made annual payments totaling $273,591 into an account for Reed, 68.

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Unlike Reed, the amount the district will award Navarro each year is based on whether he receives an “exceptional,” “proficient” or “standard” performance rating from the board. To receive the maximum amount he’s eligible for in a year, he must achieve an exceptional rating. A proficient rating would garner him 75% of the maximum, and a standard rating would bring 50%, according to his contract.

For 2015, Navarro’s maximum award was $20,000. He’s eligible to receive up to $26,500 in 2016, $34,450 in 2017 and $39,750 in 2018, according to calculations based on IRS information and Navarro’s contract.

The merit pay is in addition to Navarro’s base salary of $275,945 per year and his compensation for transportation and communications, totaling $10,200 annually.

Navarro did not respond to requests for comment this week.

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The board completes Navarro’s formal evaluation in early fall each year. The evaluation, which was created by the board, asks each trustee to anonymously grade Navarro through a point system to determine his performance on nine standards — governance; vision, mission and beliefs; culture; leadership and personal integrity; communication and advocacy; community relations; fiscal and facilities; human resources and how well he executed the board’s annual goals and priorities. Navarro also completes a self-evaluation that the board reviews, said board President Dana Black.

Navarro’s ranking in each category is unknown because his completed evaluation is not available to the public under state law.

Details of Navarro’s merit pay come amid allegations by former Newport-Mesa spokeswoman Laura Boss and former Asst. Supt. Ann Huntington that Navarro created a workplace culture of fear and intimidation that compelled them to leave their jobs in 2015. The two also allege in a lawsuit against the district filed Jan. 28 that the board failed to investigate their claims.

District representatives declined to comment about specific allegations in the lawsuit.

“As this pending litigation from two former employees proceeds through the judicial system, we believe that the evidence and facts will clearly show that these allegations are unfounded,” according to a statement issued by the district.

Navarro took the helm of Newport-Mesa Unified, which has about 22,000 students, in 2012 as the district was reeling from the departure of Supt. Jeffrey Hubbard. Hubbard was fired after he was found guilty of two counts of misappropriating funds while he was the head of Beverly Hills public schools. His conviction was overturned on appeal in 2014.

Black said Navarro has been exceptional in promoting an environment in which staff members work together to make sure every child in the district succeeds, especially as district staff has been working to design curriculum to comply with Common Core state standards. He also has succeeded in communicating with the board, staff members and students and seeking input from each group, Black said.

“He’s on campuses, in classrooms working with the teachers and principals, and then he’s also on a weekly basis communicating with the board and other staff members by email,” Black said. “That is evidence to me that everyone is on the same page and working toward the same goals.”

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Black said the board researched how other districts provide merit pay to their superintendents and determined that a tax-sheltered annuity would be the best fit.

“We didn’t want to do it in the form of a raise, because you can lose control of that,” she said. “Then we came up with the annuity, which is pretty common.”

Black declined to disclose the districts the board reviewed in its research.

Two Orange County school districts of similar size to Newport-Mesa said they don’t provide their superintendents with tax-sheltered annuities.

Supt. Terry Walker of the Irvine Unified School District, which serves more than 30,000 students, receives a base salary of $275,516, according to district spokeswoman Annie Brown. He doesn’t get a tax-sheltered annuity.

“He gets what all employees get,” Brown said.

The 24,000-student Tustin Unified School District doesn’t provide a tax-sheltered annuity to Supt. Gregory Franklin, who earns base pay of $320,190 annually, according to district spokesman Mark Eliot.

Alex Chan left Times Community News in 2017. She was a features reporter for the TimesOC section of Times Community News, and previously covered education for TCN’s Daily Pilot. Before joining Times Community News, she spent two years writing for the Orange County Register’s Varsity Arts section. She earned her degree in literary journalism from UC Irvine.

Hannah Fry is a Metro reporter covering breaking news in California. She joined Times Community News in Orange County in 2013 where she covered education, Newport Beach city hall, crime and courts. She is a native of Orange County and attended Chapman University, where she was the editor-in-chief of the college newspaper, the Panther.